Key Compliance Requirements Under the Service Contract Act

The Service Contract Act (SCA), also known as the McNamara-O'Hara Service Contract Act, establishes fair pay and benefits for service workers on government contracts. It ensures that service employees working for federal contractors receive equitable wages and benefits while protecting them from poor working conditions. For contractors, SCA compliance is critical to avoid fines, contract cancellations, and reputational damage. Whitcomb Selinsky PC helps contractors navigate these complex regulations with expert legal support.

Overview of the Service Contract Act

Enacted in 1965, the SCA applies to federal contracts exceeding $2,500 where the primary purpose is to provide services through service workers. The Act mandates that contractors pay their employees according to Department of Labor (DOL) prevailing wage determinations, which set minimum pay and fringe benefits based on job classification and geographic location.

While broad in scope, the SCA excludes contracts that fall under other statutes, such as construction contracts governed by the Davis-Bacon Act or manufacturing contracts under the Walsh-Healey Act. Determining whether a contract falls under the SCA is a key first step toward compliance. For more details, visit our Service Contract Act page.

Key Compliance Requirements

A cornerstone of SCA compliance is adhering to DOL wage determinations to ensure workers are paid at least the locally prevailing wage for their labor category, along with mandated fringe benefits. Employers must also classify employees accurately to avoid underpayment and potential penalties. Misclassification can result in substantial fines and contract disputes.

Recordkeeping requirements under the SCA demand meticulous documentation. Contractors must maintain detailed records of wages, benefits, and hours worked for at least three years. This documentation is vital for audits or investigations by the Department of Labor. Prime contractors are also responsible for ensuring that subcontractors comply with all SCA requirements, as non-compliance by a subcontractor can expose the prime contractor to liability.

Common Challenges in SCA Compliance

Contractors often struggle with employee classification, which is one of the most common sources of SCA violations. Incorrect classifications can lead to underpayments and subsequent penalties. Other frequent issues include failure to meet prevailing wage or fringe benefit obligations, inadequate documentation, and neglecting to monitor subcontractor compliance. Misunderstanding the Act’s exemptions can also lead to accidental violations. These challenges highlight the need for contractors to understand and proactively address SCA requirements.

Case Study: Menlo Service Corp. v. United States

In Menlo Service Corp. v. United States, the Ninth Circuit Court of Appeals affirmed that Menlo Service Corporation had violated the Service Contract Act (SCA). Menlo had agreements to supply technical employees to Lawrence Livermore Laboratory, a federally funded research facility. While Menlo was contractually obligated to set wages and pay prevailing wage rates as prescribed by Department of Labor regulations, it failed to pay many of its employees the required rates and fringe benefits.

The court rejected Menlo’s argument that it was not responsible for complying with the SCA due to its limited control over the employees’ working conditions. Instead, the court emphasized Menlo’s contractual responsibilities for payroll and wage-setting, deeming it a joint employer with the Laboratory. The ruling demonstrated that the SCA applies broadly, even in cases involving complex employment arrangements, and reinforced the importance of proper recordkeeping, classification, and wage determination compliance to avoid liability.

To remain compliant with the SCA, contractors should:

• Conduct regular audits to identify and correct anomalies in wages and benefits.
• Maintain robust recordkeeping systems to ensure all required documentation is accurate and accessible.
• Monitor changes in DOL wage determinations to stay current with payroll requirements.
• Seek legal guidance for complex contracts or subcontractor arrangements.

These strategies can help contractors avoid costly violations and maintain good standing with federal agencies.

Whitcomb Selinsky PC: Your Compliance Partner

Whitcomb Selinsky PC offers comprehensive legal services to assist contractors with SCA compliance. Our experienced attorneys provide support in areas such as compliance audits, worker classification, wage determinations, and representation in Department of Labor investigations. Whether addressing recordkeeping requirements or managing disputes, Whitcomb Selinsky PC helps contractors meet the SCA compliance obligations efficiently. Learn more at our Service Contract Act page.

Conclusion

SCA compliance is essential for contractors working on federal service contracts, not only to ensure fair treatment of workers but also to avoid severe penalties and reputational harm. By maintaining accurate records, conducting regular audits, and seeking professional advice, contractors can effectively navigate these requirements. Whitcomb Selinsky PC stands ready to guide contractors through every step of the process, helping them achieve and maintain compliance with confidence.